I am the co-owner of a business and have a partner. We're registered as an S-Corp and have been in existence for about 4 months. My partner decided two weeks ago to quit - she wants to either dissolve the business entirely and sell whatever she can to recoup her losses or have me buy her out and continue on. I've decided to continue with the business on my own and buy her out but we're still in the process of determining exactly what the buy-out agreement will consist of.

Currently we've both invested around $2-3K and worked on the business part-time. I have a full-time job and she was nannying full-time up until recently, as well as being a stay-at-home-mom, so this business has been a side project for both of us. Our business is really not established in any way at this point - we have no product, no customers, basically nothing. I will be left to do all of this on my own. Her responsibilities to date have been handling things like registering our website domain name, getting our tax id, signing us up for a tradeshow and researching tradeshow marketing materials. I've been developing the prototypes of our products and locating suppliers and manufacturers. As part of the buy-out agreement, my partner would like to be reimbursed for her expenses, which I think is totally reasonable, but would also like to be paid for her time for the last four months in addition to receiving a portion of any profits I receive from the company for the next 3-5 years, like 10% annually.

Basically, I have no idea what is reasonable for her to expect and me to offer. I want this to be an amicable split that is beneficial for both of us, but don't want to sell myself short in the process. Obviously getting a lawyer may be the easiest way to go, but I'd like to gather as much information before going down that path. Anyway, if anyone here has any thoughts about it, I'd be happy to hear what you think.

You definitely should talk to an attorney.
If the business has been "in business' for only 4 months, it does not seem reasonable for her to take a chunk of your profits in future years.

You say "Our business is really not established in any way at this point - we have no product, no customers, basically nothing." so maybe your best bet would be to dissolve this business.

You could probably start a different, new business on your own more cost-effectively than buying her out. From what you say, what's there to buy?

Thank you for your response! Yeah there really isn't much to buy. If we dissolved the corporation and liquidated our assets (which consist of some books, fabric, sewing machine and a sewing table) we would probably get at most $2000, and even that's generous. So she might walk away with $1000 (probably less) in assets if we just got rid of the corporation right now. I did meet with an attorney today and he felt very strongly that the only thing I should offer her is to buy out her shares based on the money she's invested (which is around $1300) but he also felt that dissolving the corp. and moving forward as a new business entity might be the easiest way to go. Right now the only thing holding me back is not wanting to ruin the friendship. I'm still figuring out the best thing to do. I put together an offer for buying out the $1300 plus interest, to be paid in monthly installments once the business begins generating a profit, as well as a bonus amount of no more than $3600 or 10% of my compensation for three years once I'm generating a profit, as well as a one-time $10,000 bonus IF the company generates more than 1 million in sales within the first three years (which is probably never going to happen). I feel like that's more than fair, but it's much less than what she'd wanted. Anyway, thanks for your input!

You should listen to what the lawyer said. She has not helped you generate ANY revenue what so ever and her stuff (getting a domain name and registering a tax id is not enough work to justify you owing her a salary - that's a 1 hour job). So, if you pay her, you'll be paying her out of your own pocket. If she's really your friend, she wouldn't ask you to do that. While you may not want to ruin a friendship, you also shouldn't hurt your own financial position, and a friend wouldn't ask you to do that...

http://pagebuzz.com - Small Business Website Hosting. $19.99 per month, no up sells, no contracts, no surprises. Shopping cart, photo galleries, drag and drop editors, graphics, specialized programming for car dealers, real estate agents, and others.

I'd have to agree with your attorney when he says just close it down, liquidate the assets, pay any bills, split what's left and start over. Given there's no "business" per se, there's no reason she should receive any payment for anything that may happen in the future.

If she continues to insist that she's entitled to a share of the profits into the future tell her to offer you the same deal and you'll take it.

All you have to this point is an idea. There are thousands of ideas and all are worthless until someone turns them into a profit... that part hasn't been accomplished to this point. Just both take your losses and start anew.
Good luck
Denny